Following President Zuma’s cabinet reshuffle at the end of March and the subsequent axing of Finance Minister Pravin Gordhan, South Africa’s economy was downgraded to junk status by two international ratings agencies.
A panel of business leaders and analysts addressed a recent Gordon Institute of Business Science (GIBS) Forum on what South African business can expect in a post-downgrade world pervaded with political and policy uncertainty.
Economic reaction and resilience
“South Africa has done itself a great disservice in the last month,” MD of Goldman Sachs Sub-Saharan African Colin Coleman said.
The work of the CEO Initiative, involving the business community, labour and government had in the past 15 months created an unprecedented framework, which had made sufficient progress to maintain the country’s investment grade rating, he explained.
The medium growth potential of the economy, combined with favorable conditions in emerging markets, would have helped sustain momentum towards an investment grade rating, and South Africa was headed for 3% GDP growth by 2019 according to Goldman Sachs estimates.
“That is now all in question because the structural reforms and the policy and growth linkage has been broken by one night of madness.”
Iraj Abedian, chief executive at the Pan-African Investment and Research Services said that in the aftermath of the ratings downgrade the South African economy was “ stunned.” The work done by the CEO Initiative and the previous Minister of Finance gave the impression that “the tide was turning slowly and that no one would do such an unpatriotic act,” Abedian said.
His advice to business was to stop all investment activity: “Shelve what you can. Do damage control. It is the only thing the economy can do.”
The future role of business
Cas Coovadia, MD of the Banking Association of South Africa said the CEO Initiative had taken a view Post-Nenegate “that we as business had to do everything we could to try and show confidence in the country and try to stop the inevitable.”
“Through the process, we were getting to a point where business was beginning to understand the imperative for a structural change in our economy to make it more inclusive and create more jobs. We were beginning to address some of the more difficult issues. All of that has gone.”
Continuing to put obstacles in the way of business was creating a disincentive for business to act in its own interests for an inclusive society Coleman said.
However, Coovadia cautioned that now was not the time for business to “throw up its hands,” but to come together and leverage off its power: “Not because we want to get involved in politics, but because politics is getting involved in business.”
Abedian supported this sentiment and argued that business must reconvene and rethink the national interest across class and race, if further downgrades were to be avoided.
Absolute capture and the new political landscape
Moeletsi Mbeki, political author and commentator argued that “the ANC is destroying South Africa” through the marginalisation of half of the working age population and through the political marginalisation of the owners of capital.
“Getting rid of Apartheid was the easy part. The really difficult part is how to change a society that is 300 years old,” Mbeki said.
Coovadia said South Africa was in a political, economic and moral crisis: “There are forces at play in our country that don’t have the national interest at the top of their agenda.”
“We are hoping against hope for a different system than the one we know today,” Coleman said, with voters more heavily weighted towards the rural poor and unlikely to vote the ANC out of office in 2019 due to their complete dependency on the government for social welfare grants.
Mbeki argued the only way to break this dependency was through private sector investment: “What is missing in our society today is how to wrestle this massive underclass from voting for the ANC. You can’t do it without the capitalists investing and creating employment for this group.”
The obligation for inclusive growth
“The established business community needs to begin to understand its long-term sustainability is dependent on including as many people as possible in the economy,” Coovadia said. “If you want to do business in 20 years time, we need economic restructuring.”
Abedian said the sub-investment downgrade or junk status was not the end for the country, but rather potentially the beginning as the country now had democratic institutions, which could be used to prevent further downgrades.
“I don’t think the South African economy is going to be a push over…We have a diversified economy with many who have been engaged in it for 300 years and a self-interest that cuts across race. But it won’t be easy, and it will require constant mobilisation, discussion and integration,” he concluded.